It looks like the $40,380 Model 3 will be the cheapest Tesla you can buy for the foreseeable future. Reuters reports that plans to build a so-called Model 2 in the $25,000 range have been canceled. The report doesn't mention a specific reason for the decision, but aggressive entry-level competition from China is believed to be a contributing factor.

This doesn't appear to be a particularly recent decision, either. Reuters cites multiple sources and messages that point to internal talks happening in late February and early March. One alleged message dated March 1 advised engineering staff to not tell suppliers about the program being canceled, while other sources say company efforts will shift from the entry-level car to the development of robotaxis. We contacted Tesla seeking comment on the report and will update this post if we get a response.

Tesla CEO Elon Musk took to X (formerly Twitter) to refute the report, saying that "Reuters is lying (again)."

Tesla Model 3 Highland

Rumors of a small Tesla slotting below the Model 3 are several years old. Envisioned as a small hatchback, it would compete with the Chevrolet Bolt and Nissan Leaf but EV trends have certainly changed since those early rumors surfaced. Demand for electric cars has softened, notably in the US and even Tesla is affected by the drop. The company's first-quarter performance for 2024 wasn't as good as expected, and then there's China. The world's largest car market is hungry for EVs and competition is fierce. Reuters speculates that the influx of inexpensive EVs from Chinese brands could be a factor in Tesla's decision.

Whatever the case, development on the small car apparently won't be wasted. Robotaxi production will reportedly use the new platform, though it's unknown when they could arrive and what those production figures will be. Presumably, Tesla won't build nearly as many as originally planned for a Model 2. And there's still the legal issue of where and how driverless vehicles can be used.

As it stands now, the Model 3 is the least expensive Tesla you can buy. It debuted in 2017 and received a small refresh for 2023. The newest model is of course the Cybertruck, but it's far from an entry-level vehicle and likely won't see large-scale production for quite some time, if ever.

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